10 Best Mortgage Refinance of 2017
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Mortgage Refinance is paying off your existing home loan by replacing it with a new one, with new rates and terms. Most homeowners refinance to obtain better interest rates, change the duration of the loan, to consolidate debt, to tap into home equity to finance a large purchase, or to switch between fixed or adjustable of rates.
Mortgage Refinance can be a great solution to help lower monthly payments when interest rates have dropped, or because your credit score has improved significantly and you can therefore obtain a better rate. It can also shorten the life of your loan if you can afford steeper monthly payments, and help you change between types of interest rates.
The crucial factors to consider when choosing a mortgage refinance lender are the type of loan they offer, the difference to the life of your current loan, the difference in monthly payments, whether closing costs and fees make the refinance unviable, and how long you’re planning on staying in your home. Before starting to comparison-shop, ask yourself what you wish to obtain through the refinance, and if it makes sense as part of a larger financial plan for your future.
For instance, if you’re not planning on staying in your home long enough to recoup the closing costs, refinance may not be advisable. Another possibility is refinancing for a larger amount than your current mortgage, by tapping into your home equity, but this means taking on more debt and paying more interest in the long run. A similar problem occurs when you refinance to a longer term, which lowers your monthly rate, but extends the life of your loan, forcing you to pay more interest. Lastly, refinancing to consolidate and pay off high-interest debt can backfire if it’s not accompanied by effective budgeting.
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Best Mortgage Refinance: Summed Up
|2||J.G. Wentworth||Mortgage Related Fees|
|3||SoFi||Mortgage Related Fees|
|4||CrossCountry Mortgage||Financial Reputation|
How We Compare Mortgage Refinance
Customer Questions & Answers
Can I use a refinance to switch between an Adjusted-Rate and Fixed-Rate mortgage or viceversa?
Adjusted-rate mortgages (ARMs) start out having low interest rates for a set period, after which periodic rate adjustments can result in increases that are higher than a fixed-rate. Many people choose to finance their initial home purchase through an ARM, in the hopes that one of two things will happen once the low rates expire: either fixed mortgage rates will have lowered and they can refinance into a conventional mortgage, or they don’t plan on staying in the house once the rate begins adjusting. In a falling rate environment, the opposite strategy (fixed to adjusted rate) can be beneficial as well, since the periodic adjustments can result in decreasing rates and smaller monthly payments. As with the first scenario, converting to an ARM is a great strategy when a homeowner doesn’t have a long term commitment to the property.
Can I refinance into a shorter term?
One of the best reasons to refinance is precisely to reduce the amount of time you spend paying off your mortgage. If you have twenty years to go on your current mortgage, and refinance into another thirty-year one, whatever you save in interest rates won’t make much of a difference. On the other hand, if you can afford to turn that twenty-year into fifteen, then the shorter term, in combination with the lower rate can substantially reduce the amount of interest you’ll pay.
Am I likely to qualify for the rate that I want?
The rates quoted on major financial websites may not be applicable to you specifically. Qualifying factors for mortgage refinance are much the same as those for a primary mortgage. Lenders will take into account your credit score, full financial history, tax returns and recent pay stubs, the type of loan you want, whether you have 20% equity, and how much other debt you carry. If you’re happy with the company that handled your first mortgage, that might be a good place to start in your search for a better rate.
Should I get a cash-out refinance?
If you have unexpected medical expenses, need to pay for college, or would like to consolidate your debt, a cash-out refinance can help. Effectively, it uses your home’s equity and borrows against it. Let’s assume your house is worth $150,000, and you still owe $80,000. You want to take out $20,000. If you refinance for $100,000, you get the $20k in cash, and ideally, a better interest rate than you had on the $80k, thereby reducing or maintaining your monthly payments. If you decide to use those $20k to consolidate your debt and take advantage of the lower interest rates in home mortgages, be very careful that you don’t incur more debt. It’s important to take into account the fact that even though the interest rate may be lower, you’ll be paying it over a longer period of time, which may result in paying more interest than you would have originally. Also remember that a cash-out refinance does chip away at your equity.
What is the break-even period, how do I calculate it, and why does it matter for my refinance?
Your break-even point refers to the amount of time it will take you to start actually seeing the savings from refinancing, and offset the total costs of the new mortgage. You can calculate it yourself by adding up the total closing costs and dividing that sum by the savings in your monthly payment thanks to the new interest rate. In a concrete example, if you save $100 a month with your new rate, and your closing costs were $3,000, then your break-even point is 30 months. If you plan to stay in the house for less time than your break even period, it wouldn’t make much sense to refinance.
What is amortization and how does it work? What does it have to with refinance?
Amortization describes the way you pay off interest over the life of your loan. When you pay off debt in fixed increments over a period of time, with each payment, a portion goes toward the interest and another towards paying off the principal (the balance of the loan itself). Right when you first take out a loan, the interest rates are highest, and they decrease over time. So, ten years into a thirty-year loan, a larger proportion of your monthly payment goes toward the principal. When you refinance, since it’s a brand-new loan, the amortization process begins again from zero. This means that once again, a larger proportion of your monthly payment will go towards the interest and not towards your balance. To determine your current amortization, this calculator can be very helpful.
Is now the best time to refinance my mortgage? Will it save me money immediately or in the long run?
The truth is, this question doesn’t have one simple answer. To answer it, first take a good look at your monthly payment statement. Interest payments will usually make up a large chunk of it, especially when your mortgage is amortized over a typical 30-year period. When you can refinance at a lower interest rate for the same term, your monthly payments can go down. If you intend to stay in your house for the foreseeable future, then it makes sense to do this, and put the money you’d be saving towards larger monthly payments, so you can pay off your mortgage quicker. Conversely, if you can only refinance into a longer term, then you may end up having paid more in interest, cancelling any short-term, monthly savings. Another possibility is to lower both the interest rate and the term of the loan. This can keep your monthly payment around the same, but allow you to pay off your loan in half the time. In cases where you’re paying a private mortgage insurance (PMI) because your down payment was too small, refinancing when you’ve built 20% equity can eliminate the PMI and lower your payments. However, all of these scenarios come with a caveat. To really figure out whether a refinance will save you money, you must factor in the associated closing costs and see how long it would take you to start truly seeing those savings.